Burkina Faso: Risk Assessment

Country Rating1

Rating: C

Business Climate Rating1

Rating: C

Risk Assessment2

Favorable agricultural prospects and an expanding mining sector

After accelerating in 2012, growth - mainly driven by the rebound of agricultural production after the previous year’s drought - is expected to remain vigorous in 2013. This is expected to result both from agricultural and development policies implemented by the authorities and the continuous expansion of the gold sector. Cotton production (the second most important export product after gold), in particular, is expected to benefit from the use of fertilizer, improved seeds and a policy of price support. Gold production is expected to increase due to the new mines coming on-stream and higher quantities extracted in existing mines. The mobile telecommunications sector and the financial sector are also expected to show continued growth. Fiscal policy remains expansionary. The government is banking on the continuation of a considerable flow of aid and on rising mining revenues in order to boost capital spending, which remains high by comparison with the regional norm. Growth forecasts nonetheless remain dependent on weather conditions, a possible worsening of the social climate and the uncertainties surrounding foreign aid. After being driven upward in the first half-year 2012 because of food shortages and the government’s decision to increase domestic oil prices, inflationary tendencies eased in the second half. This trend is expected to continue in 2013 thanks to favorable agricultural production prospects.

Consolidation efforts but big challenges on growth

The country has achieved satisfactory economic results despite a difficult environment (food shortages linked to the reduced harvest in 2011, exacerbated subsequently by an influx of refugees from Mali). Despite the shocks, it has, moreover, fulfilled its commitments under the three-year agreement concluded in June 2010 with the IMF. In addition, the risk of over-indebtedness diminished noticeably due to rapid development of the gold sector (the last debt cancellation goes back to 2002). Much remains to be done, however, to ensure more sustainable and better-distributed growth, which is the objective of the development program drawn up by Burkina Faso. Among other things, this includes diversifying agricultural production and the mining sector (manganese, zinc), improving food distribution, providing a social safety net for the most deprived, developing the education system and expanding the private sector by strengthening, in particular, the judicial structures. The external account deficit widened in 2012 due to increased food imports and higher oil and food prices, but it is expected to improve gradually in the medium term because of rising mineral exports. Gold production has increased spectacularly in recent years and the mines that are currently operational are expected to maintain current production levels until 2020, to which will be added mining operations at new sites.

A still fragile social situation

Burkina Faso has had to cope with the economic consequences of the Ivory Coast crisis and during the first half of 2011 had to contend with social unrest and violent army mutinies. Reorganizations within the army and the government made it possible, however, to ease the situation in the course of the year. The country now has to deal with the humanitarian crisis resulting from the influx of refugees from Mali. The high cost of living and corruption remain sources of social unrest while, at the end of 2012, the country is going through a tricky period due to the holding of parliamentary and municipal elections. The presidential party, which is also undergoing internal tensions, could suffer a set-back but is likely to keep its majority in the National Assembly. In the longer term, a possible constitutional change to allow the President Compaoré, in power since 1987, to stand for a fifth term in 2015, will probably not be made without creating serious tensions.

Strengths

  • Increase in gold production; major cotton producer
  • Good policy track record and implementation of structural reforms 
  • Support of the international financial community (one of the first countries to benefit from the HIPC initiative)

Weaknesses

  • Economy heavily exposed to climatic vagaries and international price movements; dependent on foreign aid
  • Geographic isolation
  • Demographic pressure and high poverty level
  • Fragile social context

1Country and Business Climate Ratings courtesy of Coface (08/2013)
2Risk Assessment and methodology courtesy of Coface (08/2013).

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